AMERICAN EAGLE OUTFITTERS INC, 10-Q filed on 5/24/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Apr. 28, 2012
May 21, 2012
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Apr. 28, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
AEO 
 
Entity Registrant Name
AMERICAN EAGLE OUTFITTERS INC 
 
Entity Central Index Key
0000919012 
 
Current Fiscal Year End Date
--02-02 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
195,969,496 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Current assets:
 
 
 
Cash and cash equivalents
$ 713,443 
$ 719,545 
$ 474,668 
Short-term investments
8,587 
25,499 
130,513 
Merchandise inventory
376,688 
378,426 
331,588 
Accounts receivable
37,472 
40,310 
31,464 
Prepaid expenses and other
75,433 
74,947 
84,687 
Deferred income taxes
48,358 
48,761 
49,023 
Total current assets
1,259,981 
1,287,488 
1,101,943 
Property and equipment, at cost, net of accumulated depreciation
572,104 
582,162 
641,907 
Intangible assets, at cost, net of accumulated amortization
39,556 
39,832 
40,454 
Goodwill
11,544 
11,469 
11,710 
Non-current deferred income taxes
16,579 
13,467 
10,030 
Other assets
16,688 
16,384 
26,294 
Total assets
1,916,452 
1,950,802 
1,832,338 
Current liabilities:
 
 
 
Accounts payable
133,861 
183,783 
155,183 
Accrued compensation and payroll taxes
21,970 
42,625 
14,915 
Accrued rent
76,550 
76,921 
70,873 
Accrued income and other taxes
14,333 
20,135 
12,242 
Unredeemed gift cards and gift certificates
30,783 
44,970 
29,187 
Current portion of deferred lease credits
14,945 
15,066 
15,981 
Other liabilities and accrued expenses
25,779 
21,901 
24,566 
Total current liabilities
318,221 
405,401 
322,947 
Non-current liabilities:
 
 
 
Deferred lease credits
73,350 
71,880 
79,131 
Non-current accrued income taxes
31,806 
35,471 
40,310 
Other non-current liabilities
22,544 
21,199 
23,486 
Total non-current liabilities
127,700 
128,550 
142,927 
Commitments and contingencies
   
   
   
Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued and outstanding
   
   
   
Common stock, $0.01 par value; 600,000 shares authorized; 249,566, 249,566 and 249,566 shares issued; 195,841, 193,848 and 194,871 shares outstanding, respectively
2,496 
2,496 
2,496 
Contributed capital
567,700 
552,797 
543,393 
Accumulated other comprehensive income
30,532 
28,659 
33,573 
Retained earnings
1,774,205 
1,771,464 
1,716,173 
Treasury stock, 53,725, 55,718 and 54,695 shares, respectively
(904,402)
(938,565)
(929,171)
Total stockholders' equity
1,470,531 
1,416,851 
1,366,464 
Total liabilities and stockholders' equity
$ 1,916,452 
$ 1,950,802 
$ 1,832,338 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Preferred stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
5,000 
5,000 
5,000 
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value
$ 0.01 
$ 0.01 
$ 0.01 
Common stock, shares authorized
600,000 
600,000 
600,000 
Common stock, shares issued
249,566 
249,566 
249,566 
Common stock, shares outstanding
195,841 
193,848 
194,871 
Treasury stock, shares
53,725 
55,718 
54,695 
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Net sales
$ 719,093 
$ 609,562 
Cost of sales, including certain buying, occupancy and warehousing expenses
446,430 
377,801 
Gross profit
272,663 
231,761 
Selling, general and administrative expenses
182,605 
158,491 
Depreciation and amortization expense
32,798 
34,880 
Operating income
57,260 
38,390 
Other income, net
3,507 
4,512 
Income before income taxes
60,767 
42,902 
Provision for income taxes
21,070 
14,577 
Net income
39,697 
28,325 
Net income per basic common share
$ 0.20 
$ 0.15 
Net income per diluted common share
$ 0.20 
$ 0.14 
Cash dividends per common share
$ 0.11 
$ 0.11 
Weighted average common shares outstanding-basic
194,890 
194,683 
Weighted average common shares outstanding-diluted
197,252 
196,633 
Retained earnings, beginning
1,771,464 
1,711,929 
Net income
39,697 
28,325 
Cash dividends and dividend equivalents
(21,945)
(21,752)
Reissuance of treasury stock
(15,011)
(2,329)
Retained earnings, ending
$ 1,774,205 
$ 1,716,173 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Net income
$ 39,697 
$ 28,325 
Other comprehensive income:
 
 
Foreign currency translation gain
1,873 
5,501 
Other comprehensive income
1,873 
5,501 
Comprehensive income
$ 41,570 
$ 33,826 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Operating activities:
 
 
Net income
$ 39,697 
$ 28,325 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Depreciation and amortization
33,323 
35,534 
Share-based compensation
21,299 
2,506 
Provision for deferred income taxes
(2,772)
8,708 
Tax benefit from share-based payments
4,422 
256 
Excess tax benefit from share-based payments
(2,643)
(139)
Foreign currency transaction gain
(145)
(219)
Changes in assets and liabilities:
 
 
Merchandise inventory
2,345 
(28,674)
Accounts receivable
2,865 
5,445 
Prepaid expenses and other
(347)
(30,327)
Other assets
(426)
(2,400)
Accounts payable
(46,852)
(7,301)
Unredeemed gift cards and gift certificates
(14,260)
(11,960)
Deferred lease credits
1,203 
(174)
Accrued compensation and payroll taxes
(20,687)
(20,110)
Accrued income and other taxes
(9,498)
(18,749)
Accrued liabilities
5,154 
90 
Total adjustments
(27,019)
(67,514)
Net cash provided by (used for) operating activities
12,678 
(39,189)
Investing activities:
 
 
Capital expenditures for property and equipment
(24,831)
(37,744)
Acquisition of intangible assets
(220)
(33,151)
Purchase of available-for-sale securities
(3,051)
(111,199)
Sale of available-for-sale securities
20,119 
48,887 
Net cash used for investing activities
(7,983)
(133,207)
Financing activities:
 
 
Payments on capital leases
(941)
(756)
Repurchase of common stock from employees
(4,100)
(2,181)
Net proceeds from stock options exercised
12,165 
2,539 
Excess tax benefit from share-based payments
2,643 
139 
Cash dividends paid
(21,524)
(21,430)
Net cash used for financing activities
(11,757)
(21,689)
Effect of exchange rates changes on cash
960 
1,160 
Net decrease in cash and cash equivalents
(6,102)
(192,925)
Cash and cash equivalents-beginning of period
719,545 
667,593 
Cash and cash equivalents-end of period
713,443 
474,668 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for income taxes
34,782 
50,419 
Cash paid during the period for interest
$ 33 
$ 0 
Interim Financial Statements
Interim Financial Statements

1. Interim Financial Statements

The accompanying Consolidated Financial Statements of American Eagle Outfitters, Inc. (the “Company”) at April 28, 2012 and April 30, 2011 and for the 13 week periods ended April 28, 2012 and April 30, 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain notes and other information have been condensed or omitted from the interim Consolidated Financial Statements presented in this Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial Statements should be read in conjunction with the Company’s Fiscal 2011 Annual Report. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and those described in the footnotes that follow) considered necessary for a fair presentation have been included. The existence of subsequent events has been evaluated through the filing date of this Quarterly Report on Form 10-Q.

As used in this report, all references to “we,” “our” and the “Company” refer to American Eagle Outfitters, Inc. and its wholly owned subsidiaries. “American Eagle Outfitters,” “American Eagle,” “AE” and the “AE Brand” refer to our U.S. and Canadian American Eagle Outfitters stores. “aerie” refers to our U.S. and Canadian aerie® by American Eagle® stores. “77kids” refers to our 77kids by american eagle® stores. “AEO Direct” refers to our e-commerce operations, ae.com, aerie.com and 77kids.com.

The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses. The results for the current and prior periods are not necessarily indicative of future financial results.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At April 28, 2012, the Company operated in one reportable segment.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2012” refers to the 53 week period ending February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, respectively.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. The Company adopted ASU 2011-05 on January 29, 2012 by presenting total other comprehensive income and its components as a separate statement following the Consolidated Statements of Operations and Retained Earnings.

 

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 applies to all companies that have goodwill reported in their financial statements. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted ASU 2011-08 on January 29, 2012 with no impact to the Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in net sales. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within net sales and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.

Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of net sales. For further information on the Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes royalty revenue generated from its franchise agreements based on a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of net sales when earned.

The Company sells off end-of-season, overstock and irregular merchandise to a third-party. The proceeds from these sales are presented on a gross basis, with proceeds and cost of sell-offs recorded in net sales and cost of sales, respectively.

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy, and warehousing costs. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Merchandise profit is the difference between net sales and merchandise costs. Gross profit is the difference between net sales and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Other Income, Net

Other income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, InvestmentsDebt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”). There was no net impairment loss recognized in earnings during the 13 weeks ended April 28, 2012 or April 30, 2011.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments

Cash includes cash equivalents. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

As of April 28, 2012, short-term investments include treasury bills with a maturity of greater than three months, but less than one year. It also includes auction rate securities (“ARS”) classified as available for sale that the Company expects to be redeemed at par within 12 months.

As of April 28, 2012, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. Long-term investments are included within other assets on the Company’s Consolidated Balance Sheets. The ARS Call Option expires on October 29, 2013.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. The components of OTTI losses related to credit losses, as defined by ASC 320, are considered by the Company to be realized and are recorded in earnings. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

 

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.

The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

    Buildings

   25 years

    Leasehold improvements

   Lesser of 10 years or the term of the lease

    Fixtures and equipment

   5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded. No long-lived asset impairment charges were recorded during the 13 weeks ended April 28, 2012 or April 30, 2011.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 28, 2012. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in the 13 weeks ended April 28, 2012 or April 30, 2011.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

Gift Cards

The value of a gift card is recorded as a current liability upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of net sales. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During the 13 weeks ended April 28, 2012 and April 30, 2011, the Company recorded $1.9 million and $1.1 million, respectively, of revenue related to gift card breakage.

Deferred Lease Credits

Deferred lease credits represent the unamortized portion of construction allowances received from landlords related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Co-branded Credit Card and Customer Loyalty Program

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the American Eagle, aerie and 77kids brands. These credit cards are issued by a third-party bank (the “Bank”), and the Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases at AE, aerie and 77kids are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE, aerie or 77kids purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. These rewards can be redeemed for a discount on a purchase of merchandise. Rewards not redeemed during the one-month redemption period are forfeited. The Company determined that rewards earned using the Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified four operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores, 77kids retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

 

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments
Cash and Cash Equivalents, Short-term Investments and Long-term Investments

3. Cash and Cash Equivalents, Short-term Investments and Long-term Investments

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded on the Consolidated Balance Sheets:

 

(In thousands)    April 28,
2012
     January 28,
2012
     April 30,
2011
 

Cash and cash equivalents:

        

Cash

   $ 625,398       $ 548,728       $ 251,002   

Money-market

     51,915         131,785         154,548   

Commercial paper

     19,999         29,998         43,830   

Treasury bills

     16,131         9,034         25,288   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 719,545       $ 474,668   

Short-term investments:

        

Treasury bills

   $ 3,087       $ 19,999       $ 73,143   

State and local government ARS

     5,500         5,500         3,700   

Corporate bonds

     —           —           21,232   

Term-deposits

     —           —           18,743   

Commercial paper

     —           —           13,695   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 25,499       $ 130,513   

Long-term investments:

        

ARS Call Option

   $ 727       $ 847       $ 415   

State and local government ARS

     —           —           5,500   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 727       $ 847       $ 5,915   
  

 

 

    

 

 

    

 

 

 

Total

   $ 722,757       $ 745,891       $ 611,096   
  

 

 

    

 

 

    

 

 

 

Proceeds from the sale of investments were $20.1 million and $48.9 million for the 13 weeks ended April 28, 2012 and April 30, 2011, respectively. The purchase of investments was $3.1 million and $111.2 million for the 13 weeks ended April 28, 2012 and April 30, 2011, respectively. As of April 28, 2012 and April 30, 2011, the fair value of all ARS investments approximated par, with no gross unrealized holding losses.

During Fiscal 2010, the Company liquidated ARS investments with $191.4 million of carrying value for proceeds of $177.5 million and a realized loss of $24.4 million (of which $10.9 million had previously been included in OCI on the Company’s Consolidated Balance Sheets). The ARS securities sold during Fiscal 2010 included $119.7 million of par value ARS securities whereby the Company entered into a settlement agreement under which a financial institution (the “purchaser”) purchased the ARS at a discount to par, plus accrued interest. Additionally, under this agreement, the Company retained a right (the “ARS Call Option”), for a period ending October 29, 2013 to: (a) repurchase any or all of the ARS securities sold at the agreed upon purchase prices received from the purchaser plus accrued interest; and/or (b) receive additional proceeds from the purchaser upon certain redemptions of the ARS securities sold. The ARS Call Option is cancelable by the purchaser for additional cash consideration.

The Company is required to assess the value of the ARS Call Option at the end of each reporting period, with any changes in fair value recorded within the Consolidated Statement of Operations. Upon origination, the Company determined that the fair value was $0.4 million. The fair value of the ARS Call Option was included as an offsetting amount within the net loss on liquidation of $24.4 million referenced above. As of April 28, 2012, the Company determined that the remaining value of the ARS Call Option, which is classified as a long-term investment, was $0.7 million.

Fair Value Measurements
Fair Value Measurements

4. Fair Value Measurements

ASC 820, Fair Value Measurement Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date.

Financial Instruments

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

   

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

   

Level 3 — Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of April 28, 2012 and April 30, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. These include cash equivalents and short and long-term investments, including ARS.

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of April 28, 2012 and April 30, 2011:

 

     Fair Value Measurements at April 28, 2012  
(In thousands)    Carrying Amount      Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 625,398       $ 625,398       $ —         $ —     

Money-market

     51,915         51,915         —           —     

Commercial paper

     19,999         19,999         —           —     

Treasury bills

     16,131         16,131         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 713,443       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 3,087       $ 3,087       $ —         $ —     

State and local government ARS

     5,500         —           —           5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 3,087       $ —         $ 5,500   

Long-term investments:

           

ARS Call Option

   $ 727       $ —         $ —         $ 727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 727       $ —         $ —         $ 727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 722,757       $ 716,530       $ —         $ 6,227   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements at April 30, 2011  
(In thousands)    Carrying Amount      Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 251,002       $ 251,002       $ —         $ —     

Money-market

     154,548         154,548         —           —     

Commercial paper

     43,830         43,830         —           —     

Treasury bills

     25,288         25,288         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 474,668       $ 474,668       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 73,143       $ 73,143       $ —         $ —     

Corporate bonds

     21,232         21,232         —           —     

Term-deposits

     18,743         18,743         —           —     

Commercial paper

     13,695         13,695         —           —     

State and local government ARS

     3,700         —           —           3,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 130,513       $ 126,813       $ —         $ 3,700   

Long-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $ 5,500   

ARS Call Option

     415         —           —           415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 5,915       $ —         $ —         $ 5,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 611,096       $ 601,481       $ —         $ 9,615   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company uses a discounted cash flow model to value its Level 3 investments. At April 28, 2012, the assumptions in the Company’s model for Level 3 investments, excluding the ARS Call Option, included a recovery period of two months, a discount factor for yield of 0.1% and illiquidity of 0.5%. At April 30, 2011, the assumptions in the Company’s model included different recovery periods, ranging from two months to 14 months, varying discount factors for yield, ranging from 0.2% to 2.0%, and illiquidity of 0.5%. These assumptions are subjective. They are based on the Company’s current judgment and its view of current market conditions. The use of different reasonable assumptions would not result in a material change to the valuation.

As a result of the discounted cash flow analysis, no impairment loss was recorded for the 13 weeks ended April 28, 2012 or April 30, 2011.

The fair value of the ARS Call Option described in Note 3 to the Consolidated Financial Statements was also estimated using a discounted cash flow model. The model considered potential changes in yields for securities with similar characteristics to the underlying ARS and evaluated possible future refinancing opportunities for the issuers of the ARS. The analysis then assessed the likelihood that the options would be exercisable as a result of the underlying ARS being redeemed or traded in a secondary market at an amount greater than the exercise price prior to the end of the option term. Changes in the fair value of the ARS Call Option are recorded within the Consolidated Statements of Operations and Retained Earnings.

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the thirteen weeks ended April 28, 2012 is as follows.

      Level 3 (Unobservable inputs)  
(In thousands)    Total     Auction-Rate
Municipal
Securities
     ARS Call
Option
 

Carrying value at January 28, 2012

   $ 6,347      $ 5,500       $ 847   

Settlements

     (120     —           (120
  

 

 

   

 

 

    

 

 

 

Balance at April 28, 2012

   $ 6,227      $ 5,500       $ 727   
  

 

 

   

 

 

    

 

 

 

There were no changes in the value of the Company’s Level 3 assets from January 29, 2011 to April 30, 2011.

Non-Financial Assets

The Company’s non-financial assets, which include goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial instrument for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the estimated fair value. As a result of the Company’s annual goodwill impairment test performed as of January 28, 2012, the Company concluded that its goodwill was not impaired. During the 13 weeks ended April 28, 2012, there were no triggering events that prompted an asset impairment test of the Company’s non-financial assets.

Earnings per Share
Earnings per Share

5. Earnings per Share

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended  
(In thousands)    April 28,
2012
     April 30,
2011
 

Weighted average common shares outstanding:

     

Basic number of common shares outstanding

     194,890         194,683   

Dilutive effect of stock options and non-vested restricted stock

     2,362         1,950   
  

 

 

    

 

 

 

Diluted number of common shares outstanding

     197,252         196,633   
  

 

 

    

 

 

 

Equity awards to purchase approximately 7.7 million shares of common stock during the 13 weeks ended April 28, 2012 and approximately 7.4 million shares of common stock during the 13 weeks ended April 30, 2011, respectively, were outstanding, but were not included in the computation of weighted average diluted common share amounts as the effect of doing so would be anti-dilutive.

There were approximately 0.9 million shares for the 13 weeks ended April 28, 2012 and approximately 1.8 million shares for the 13 weeks ended April 30, 2011 of restricted stock units that were outstanding, but not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive.

Refer to Note 9 to the Consolidated Financial Statements for additional information regarding share-based compensation.

Property and Equipment
Property and Equipment

6. Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    April 28,
2012
    January 28,
2012
    April 30,
2011
 

Property and equipment, at cost

   $ 1,458,090      $ 1,458,522      $ 1,458,608   

Less: Accumulated depreciation

     (885,986     (876,360     (816,701
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 572,104      $ 582,162      $ 641,907   
  

 

 

   

 

 

   

 

 

 
Intangible Assets
Intangible Assets

7. Intangible Assets

Intangible assets consist of the following:

 

(In thousands)    April 28,
2012
    January 28,
2012
    April 30,
2011
 

Trademarks, at cost

   $ 44,362      $ 44,142      $ 43,114   

Less: Accumulated amortization

     (4,806     (4,310     (2,660
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 39,556      $ 39,832      $ 40,454   
  

 

 

   

 

 

   

 

 

 
Other Credit Arrangements
Other Credit Arrangements

8. Other Credit Arrangements

On March 2, 2012, the Company entered into a five-year, $150.0 million syndicated, unsecured, revolving credit agreement (the “Credit Agreement”). The primary purpose of the Credit Agreement is to provide additional access to capital for general corporate purposes, growth initiatives and the issuance of letters of credit.

The Credit Agreement contains financial covenants that require the Company to maintain certain coverage and leverage ratios, and various customary affirmative and negative covenants such as the ability to incur additional debt not otherwise permitted under the Credit Agreement.

The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate (“LIBOR” as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly.

Under the Credit Agreement, the Company is also required to pay a commitment fee ranging from 0.175% to 0.30%, based on the defined leverage ratio, on the unused portion of the total lender commitments.

As of April 28, 2012, the Company was in compliance with the terms of the Credit Agreement and had $7.6 million outstanding in letters of credit and no borrowings.

The Credit Agreement replaced uncommitted demand lines in the aggregate amount of $110.0 million United States dollars (“USD”) and $25.0 million Canadian dollars (“CAD”).

Additionally, the Company has borrowing agreements with two separate financial institutions under which it may borrow an aggregate of $135.0 million USD for the purposes of trade letter of credit issuances. As of April 28, 2012, the Company had outstanding trade letters of credit of $23.9 million. The availability of any future borrowings under the trade letter of credit facilities is subject to acceptance by the respective financial institutions.

Share-Based Compensation
Share-Based Compensation

9. Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires companies to measure and recognize compensation expense for all share-based payments at fair value. Total share-based compensation expense included in the Consolidated Statements of Operations for the 13 weeks ended April 28, 2012 and April 30, 2011 was $21.3 million ($13.1 million, net of tax) and $2.5 million ($1.5 million net of tax), respectively.

Stock Option Grants

The Company grants both time-based and performance-based stock options under its 2005 Stock Award and Incentive Plan. Time-based stock option awards vest over the requisite service period of the award or to an employee’s eligible retirement date, if earlier. Performance-based stock option awards vest over one year and are earned if the Company meets pre-established performance goals.

 

A summary of the Company’s stock option activity for the 13 weeks ended April 28, 2012 follows:

 

      Options     Weighted-Average
Exercise Price
     Weighted-Average
Remaining
Contractual

Term
     Aggregate
Intrinsic Value
 
     (In thousands)            (In years)      (In thousands)  

Outstanding—January 28, 2012

     11,197      $ 15.31         

Granted

     1,046      $ 14.26         

Exercised (1)

     (1,516   $ 8.00         

Cancelled

     (391   $ 10.57         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding—April 28, 2012

     10,336      $ 16.45         2.5       $ 40,451   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest—April 28, 2012

     10,235      $ 16.47         2.5       $ 40,085   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable—April 28, 2012 (2)

     4,973      $ 11.56         2.1       $ 34,183   

 

(1) Options exercised during the 13 weeks ended April 28, 2012 had exercise prices ranging from $4.54 to $13.04.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted average exercise price of vested options compared to the Company’s stock price at April 28, 2012.

The weighted-average grant date fair value of stock options granted during the 13 weeks ended April 28, 2012 and April 30, 2011 was $3.69 and $4.73, respectively. The aggregate intrinsic value of options exercised during the 13 weeks ended April 28, 2012 and April 30, 2011 was $13.1 million and $1.2 million, respectively.

Cash received from the exercise of stock options was $12.2 million for the 13 weeks ended April 28, 2012 and $2.5 million for the 13 weeks ended April 30, 2011. The actual tax benefit realized from stock option exercises totaled $4.4 million for the 13 weeks ended April 28, 2012 and $0.3 million for the 13 weeks ended April 30, 2011.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     13 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   April 28,
2012
    April 30,
2011
 

Risk-free interest rate (1)

     0.6     2.1

Dividend yield

     2.8     2.3

Volatility factor (2)

     41.2     42.7

Weighted-average expected term (3)

     4.0 years        5.0 years   

Expected forfeiture rate (4)

     8.0     8.0

 

(1) Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.
(2) Based on a combination of historical volatility of the Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

As of April 28, 2012, there was $3.4 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 2.3 years.

Restricted Stock Grants

Time-based restricted stock awards are comprised of time-based restricted stock units. These awards vest over three years; however, they may be accelerated to vest over one year if the Company meets pre-established performance goals in the year of grant. Time-based restricted stock units receive dividend equivalents in the form of additional time-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

 

Performance-based restricted stock awards include performance-based restricted stock units. These awards cliff vest at the end of a three year period based upon the Company’s achievement of pre-established goals throughout the term of the award. Performance-based restricted stock units receive dividend equivalents in the form of additional performance-based restricted stock units, which are subject to the same restrictions and forfeiture provisions as the original award.

The grant date fair value of all restricted stock awards is based on the closing market price of the Company’s common stock on the date of grant.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
      13 Weeks Ended
April 28, 2012
     13 Weeks Ended
April 28, 2012
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 28, 2012

     1,784      $ 15.73         1,762      $ 14.23   

Granted

     1,472        14.69         869        14.65   

Vested

     (1,074     16.65         —          —     

Cancelled

     (56     15.02         (397     11.67   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - April 28, 2012

     2,126      $ 14.56         2,234      $ 14.85   

As of April 28, 2012, there was $35.5 million of unrecognized compensation expense related to non-vested time-based restricted stock unit awards that is expected to be recognized over a weighted average period of 2.3 years. Additionally, there was $18.9 million of unrecognized compensation expense related to performance-based restricted stock unit awards which will be recognized as achievement of performance goals is probable.

As of April 28, 2012, the Company had 23.2 million shares available for all equity grants.

Income Taxes
Income Taxes

10. Income Taxes

The provision for income taxes from continuing operations is based on the current estimate of the annual effective income tax rate and is adjusted as necessary for quarterly events. The effective income tax rate from continuing operations based on actual operating results for the 13 weeks ended April 28, 2012 was 34.7% compared to 34.0% for the 13 weeks ended April 30, 2011. The effective income tax rate for the 13 weeks ended April 28, 2012 and April 30, 2011, respectively, was lower than the statutory rate primarily due to proceeds received related to the Company’s ARS call option for which no income tax expense was recognized, as well as federal and state income tax settlements and other changes in income tax reserves.

The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company recognizes income tax liabilities related to unrecognized tax benefits in accordance with ASC 740 and adjusts these liabilities when its judgment changes as the result of the evaluation of new information not previously available. Unrecognized tax benefits did not change significantly during the 13 weeks ended April 28, 2012 and April 30, 2011, respectively. Over the next twelve months, the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $6.6 million due to settlements, expiration of statute of limitations or other changes in unrecognized tax benefits.

Legal Proceedings
Legal Proceedings

11. Legal Proceedings

The Company is subject to certain legal proceedings and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies (“ASC 450”), management records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. If a range of possible loss exists and no anticipated loss within the range is more likely than any other anticipated loss, the Company records the accrual at the low end of the range, in accordance with ASC 450. As the Company believes that it has provided adequate reserves, it anticipates that the ultimate outcome of any matter currently pending against the Company will not materially affect the consolidated financial position or results of operations of the Company.

Subsequent Event
Subsequent Event

12. Subsequent Event

On May 18, 2012, the Company announced plans to exit the 77kids business, which includes 22 stores and the online business. The Company is currently exploring options for the business, which include a full or partial disposition of assets to a third party. In fiscal 2011, the brand generated an after-tax loss of $23.6 million on sales of $39.8 million. Pre-tax asset impairment charges of approximately $16.0 million are expected in the second quarter as a result of the decision. The Company anticipates the remaining exit charges to be taken primarily in the second and third quarters, which will be disclosed when the plans are finalized.

Summary of Significant Accounting Policies (Policies)

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. At April 28, 2012, the Company operated in one reportable segment.

Fiscal Year

The Company’s financial year is a 52/53 week year that ends on the Saturday nearest to January 31. As used herein, “Fiscal 2012” refers to the 53 week period ending February 2, 2013. “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ended January 28, 2012 and January 29, 2011, respectively.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, our management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. For public entities, the amendments in ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and are to be applied retrospectively, with early adoption permitted. The Company adopted ASU 2011-05 on January 29, 2012 by presenting total other comprehensive income and its components as a separate statement following the Consolidated Statements of Operations and Retained Earnings.

 

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU 2011-08 applies to all companies that have goodwill reported in their financial statements. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted ASU 2011-08 on January 29, 2012 with no impact to the Consolidated Financial Statements.

Foreign Currency Translation

The Canadian dollar is the functional currency for the Canadian business. In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, assets and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in the results of operations, whereas, related translation adjustments are reported as an element of other comprehensive income in accordance with ASC 220, Comprehensive Income.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. The Company’s e-commerce operation records revenue upon the estimated customer receipt date of the merchandise. Shipping and handling revenues are included in net sales. Sales tax collected from customers is excluded from revenue and is included as part of accrued income and other taxes on the Company’s Consolidated Balance Sheets.

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions and other promotions. The Company records the impact of adjustments to its sales return reserve quarterly within net sales and cost of sales. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages.

Revenue is not recorded on the purchase of gift cards. A current liability is recorded upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. Additionally, the Company recognizes revenue on unredeemed gift cards based on an estimate of the amounts that will not be redeemed (“gift card breakage”), determined through historical redemption trends. Gift card breakage revenue is recognized in proportion to actual gift card redemptions as a component of net sales. For further information on the Company’s gift card program, refer to the Gift Cards caption below.

The Company recognizes royalty revenue generated from its franchise agreements based on a percentage of merchandise sales by the franchisee. This revenue is recorded as a component of net sales when earned.

The Company sells off end-of-season, overstock and irregular merchandise to a third-party. The proceeds from these sales are presented on a gross basis, with proceeds and cost of sell-offs recorded in net sales and cost of sales, respectively.

Cost of Sales, Including Certain Buying, Occupancy and Warehousing Expenses

Cost of sales consists of merchandise costs, including design, sourcing, importing and inbound freight costs, as well as markdowns, shrinkage and certain promotional costs (collectively, “merchandise costs”) and buying, occupancy, and warehousing costs. Buying, occupancy and warehousing costs consist of compensation, employee benefit expenses and travel for our buyers and certain senior merchandising executives; rent and utilities related to our stores, corporate headquarters, distribution centers and other office space; freight from our distribution centers to the stores; compensation and supplies for our distribution centers, including purchasing, receiving and inspection costs; and shipping and handling costs related to our e-commerce operation. Merchandise profit is the difference between net sales and merchandise costs. Gross profit is the difference between net sales and cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and employee benefit expenses, including salaries, incentives and related benefits associated with our stores and corporate headquarters. Selling, general and administrative expenses also include advertising costs, supplies for our stores and home office, communication costs, travel and entertainment, leasing costs and services purchased. Selling, general and administrative expenses do not include compensation, employee benefit expenses and travel for our design, sourcing and importing teams, our buyers and our distribution centers as these amounts are recorded in cost of sales.

Other Income, Net

Other income, net consists primarily of interest income/expense, foreign currency transaction gain/loss and realized investment gains/losses.

Other-than-Temporary Impairment

The Company evaluates its investments for impairment in accordance with ASC 320, InvestmentsDebt and Equity Securities (“ASC 320”). ASC 320 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. If, after consideration of all available evidence to evaluate the realizable value of its investment, impairment is determined to be other-than-temporary, then an impairment loss is recognized in the Consolidated Statement of Operations equal to the difference between the investment’s cost and its fair value. Additionally, ASC 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires the Company to present total other-than-temporary impairment (“OTTI”) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income (“OCI”). There was no net impairment loss recognized in earnings during the 13 weeks ended April 28, 2012 or April 30, 2011.

Cash and Cash Equivalents, Short-term Investments and Long-term Investments

Cash includes cash equivalents. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

As of April 28, 2012, short-term investments include treasury bills with a maturity of greater than three months, but less than one year. It also includes auction rate securities (“ARS”) classified as available for sale that the Company expects to be redeemed at par within 12 months.

As of April 28, 2012, long-term investments include the Company’s ARS Call Option related to investment sales during Fiscal 2010. Long-term investments are included within other assets on the Company’s Consolidated Balance Sheets. The ARS Call Option expires on October 29, 2013.

Unrealized gains and losses on the Company’s available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity, within accumulated other comprehensive income, until realized. The components of OTTI losses related to credit losses, as defined by ASC 320, are considered by the Company to be realized and are recorded in earnings. When available-for-sale securities are sold, the cost of the securities is specifically identified and is used to determine any realized gain or loss.

Refer to Note 3 to the Consolidated Financial Statements for information regarding cash and cash equivalents, short-term investments and long-term investments.

Merchandise Inventory

Merchandise inventory is valued at the lower of average cost or market, utilizing the retail method. Average cost includes merchandise design and sourcing costs and related expenses. The Company records merchandise receipts at the time merchandise is delivered to the foreign shipping port by the manufacturer (FOB port). This is the point at which title and risk of loss transfer to the Company.

The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns to clear merchandise. Additionally, the Company estimates a markdown reserve for future planned permanent markdowns related to current inventory. Markdowns may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in stock will not sell at its currently ticketed price. Such markdowns may have a material adverse impact on earnings, depending on the extent and amount of inventory affected. The Company also estimates a shrinkage reserve for the period between the last physical count and the balance sheet date. The estimate for the shrinkage reserve, based on historical results, can be affected by changes in merchandise mix and changes in actual shrinkage trends.

Income Taxes

The Company calculates income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the Consolidated Financial Statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to ASC 740. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in the Company’s level and composition of earnings, tax laws or the deferred tax valuation allowance, as well as the results of tax audits may materially impact the Company’s effective income tax rate.

The Company evaluates its income tax positions in accordance with ASC 740, which prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. Under ASC 740, a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.

The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. The Company believes that its assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income.

Refer to Note 10 to the Consolidated Financial Statements for additional information regarding income taxes.

Property and Equipment

Property and equipment is recorded on the basis of cost with depreciation computed utilizing the straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of assets are as follows:

 

    Buildings

   25 years

    Leasehold improvements

   Lesser of 10 years or the term of the lease

    Fixtures and equipment

   5 years

In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), the Company evaluates long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified, for stores that have been open for a period of time sufficient to reach maturity. Impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When events such as these occur, the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded. No long-lived asset impairment charges were recorded during the 13 weeks ended April 28, 2012 or April 30, 2011.

Refer to Note 6 to the Consolidated Financial Statements for additional information regarding property, plant and equipment.

Goodwill

The Company’s goodwill is primarily related to the acquisition of its importing operations and Canadian business. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), the Company evaluates goodwill for possible impairment on at least an annual basis and last performed an annual impairment test as of January 28, 2012. As a result of the Company’s annual goodwill impairment test, the Company concluded that its goodwill was not impaired.

Intangible Assets

Intangible assets are recorded on the basis of cost with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The Company’s intangible assets, which primarily include trademark assets, are amortized over 15 to 25 years.

The Company evaluates intangible assets for impairment in accordance with ASC 350 when events or circumstances indicate that the carrying value of the asset may not be recoverable. Such an evaluation includes the estimation of undiscounted future cash flows to be generated by those assets. If the sum of the estimated future undiscounted cash flows are less than the carrying amounts of the assets, then the assets are impaired and are adjusted to their estimated fair value. No intangible asset impairment charges were recorded in the 13 weeks ended April 28, 2012 or April 30, 2011.

Refer to Note 7 to the Consolidated Financial Statements for additional information regarding intangible assets.

Gift Cards

The value of a gift card is recorded as a current liability upon purchase, and revenue is recognized when the gift card is redeemed for merchandise. The Company estimates gift card breakage and recognizes revenue in proportion to actual gift card redemptions as a component of net sales. The Company determines an estimated gift card breakage rate by continuously evaluating historical redemption data and the time when there is a remote likelihood that a gift card will be redeemed. During the 13 weeks ended April 28, 2012 and April 30, 2011, the Company recorded $1.9 million and $1.1 million, respectively, of revenue related to gift card breakage.

Deferred Lease Credits

Deferred lease credits represent the unamortized portion of construction allowances received from landlords related to the Company’s retail stores. Construction allowances are generally comprised of cash amounts received by the Company from its landlords as part of the negotiated lease terms. The Company records a receivable and a deferred lease credit liability at the lease commencement date (date of initial possession of the store). The deferred lease credit is amortized on a straight-line basis as a reduction of rent expense over the term of the original lease (including the pre-opening build-out period) and any subsequent renewal terms. The receivable is reduced as amounts are received from the landlord.

Co-branded Credit Card and Customer Loyalty Program

The Company offers a co-branded credit card (the “AEO Visa Card”) and a private label credit card (the “AEO Credit Card”) under the American Eagle, aerie and 77kids brands. These credit cards are issued by a third-party bank (the “Bank”), and the Company has no liability to the Bank for bad debt expense, provided that purchases are made in accordance with the Bank’s procedures. Once a customer is approved to receive the AEO Visa Card or the AEO Credit Card and the card is activated, the customer is eligible to participate in the credit card rewards program. Customers who make purchases at AE, aerie and 77kids earn discounts in the form of savings certificates when certain purchase levels are reached. Also, AEO Visa Card customers who make purchases at other retailers where the card is accepted earn additional discounts. Savings certificates are valid for 90 days from issuance.

Points earned under the credit card rewards program on purchases at AE, aerie and 77kids are accounted for by analogy to ASC 605-25, Revenue Recognition, Multiple Element Arrangements (“ASC 605-25”). The Company believes that points earned under its point and loyalty programs represent deliverables in a multiple element arrangement rather than a rebate or refund of cash. Accordingly, the portion of the sales revenue attributed to the award points is deferred and recognized when the award is redeemed or when the points expire. Additionally, credit card reward points earned on non-AE, aerie or 77kids purchases are accounted for in accordance with ASC 605-25. As the points are earned, a current liability is recorded for the estimated cost of the award, and the impact of adjustments is recorded in cost of sales.

The Company offers its customers the AEREWARD$sm loyalty program (the “Program”). Under the Program, customers accumulate points based on purchase activity and earn rewards by reaching certain point thresholds during three-month earning periods. Rewards earned during these periods are valid through the stated expiration date, which is approximately one month from the mailing date of the reward. These rewards can be redeemed for a discount on a purchase of merchandise. Rewards not redeemed during the one-month redemption period are forfeited. The Company determined that rewards earned using the Program should be accounted for in accordance with ASC 605-25. Accordingly, the portion of the sales revenue attributed to the award credits is deferred and recognized when the awards are redeemed or expire.

Segment Information

In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company has identified four operating segments (American Eagle Brand US and Canadian retail stores, aerie retail stores, 77kids retail stores and AEO Direct) that reflect the basis used internally to review performance and allocate resources. All of the operating segments have been aggregated and are presented as one reportable segment, as permitted by ASC 280.

Reclassification

Certain reclassifications have been made to the Consolidated Financial Statements for prior periods in order to conform to the current period presentation.

Summary of Significant Accounting Policies (Tables)
Useful Lives of Major Classes of Assets

lives. The useful lives of our major classes of assets are as follows:

 

    Buildings

   25 years

    Leasehold improvements

   Lesser of 10 years or the term of the lease

    Fixtures and equipment

   5 years
Cash and Cash Equivalents, Short-term Investments and Long-term Investments (Tables)
Fair Market Values for Cash and Marketable Securities

The following table summarizes the fair market values for the Company’s cash and marketable securities, which are recorded on the Consolidated Balance Sheets:

 

(In thousands)    April 28,
2012
     January 28,
2012
     April 30,
2011
 

Cash and cash equivalents:

        

Cash

   $ 625,398       $ 548,728       $ 251,002   

Money-market

     51,915         131,785         154,548   

Commercial paper

     19,999         29,998         43,830   

Treasury bills

     16,131         9,034         25,288   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 719,545       $ 474,668   

Short-term investments:

        

Treasury bills

   $ 3,087       $ 19,999       $ 73,143   

State and local government ARS

     5,500         5,500         3,700   

Corporate bonds

     —           —           21,232   

Term-deposits

     —           —           18,743   

Commercial paper

     —           —           13,695   
  

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 25,499       $ 130,513   

Long-term investments:

        

ARS Call Option

   $ 727       $ 847       $ 415   

State and local government ARS

     —           —           5,500   
  

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 727       $ 847       $ 5,915   
  

 

 

    

 

 

    

 

 

 

Total

   $ 722,757       $ 745,891       $ 611,096   
  

 

 

    

 

 

    

 

 

 
Fair Value Measurements (Tables)

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of April 28, 2012 and April 30, 2011:

 

     Fair Value Measurements at April 28, 2012  
(In thousands)    Carrying Amount      Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 625,398       $ 625,398       $ —         $ —     

Money-market

     51,915         51,915         —           —     

Commercial paper

     19,999         19,999         —           —     

Treasury bills

     16,131         16,131         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 713,443       $ 713,443       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 3,087       $ 3,087       $ —         $ —     

State and local government ARS

     5,500         —           —           5,500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 8,587       $ 3,087       $ —         $ 5,500   

Long-term investments:

           

ARS Call Option

   $ 727       $ —         $ —         $ 727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 727       $ —         $ —         $ 727   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 722,757       $ 716,530       $ —         $ 6,227   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements at April 30, 2011  
(In thousands)    Carrying Amount      Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Cash and cash equivalents:

           

Cash

   $ 251,002       $ 251,002       $ —         $ —     

Money-market

     154,548         154,548         —           —     

Commercial paper

     43,830         43,830         —           —     

Treasury bills

     25,288         25,288         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 474,668       $ 474,668       $ —         $ —     

Short-term investments:

           

Treasury bills

   $ 73,143       $ 73,143       $ —         $ —     

Corporate bonds

     21,232         21,232         —           —     

Term-deposits

     18,743         18,743         —           —     

Commercial paper

     13,695         13,695         —           —     

State and local government ARS

     3,700         —           —           3,700   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 130,513       $ 126,813       $ —         $ 3,700   

Long-term investments:

           

State and local government ARS

   $ 5,500       $ —         $ —         $ 5,500   

ARS Call Option

     415         —           —           415   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 5,915       $ —         $ —         $ 5,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 611,096       $ 601,481       $ —         $ 9,615   
  

 

 

    

 

 

    

 

 

    

 

 

 

The reconciliation of the Company’s assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the thirteen weeks ended April 28, 2012 is as follows.

      Level 3 (Unobservable inputs)  
(In thousands)    Total     Auction-Rate
Municipal
Securities
     ARS Call
Option
 

Carrying value at January 28, 2012

   $ 6,347      $ 5,500       $ 847   

Settlements

     (120     —           (120
  

 

 

   

 

 

    

 

 

 

Balance at April 28, 2012

   $ 6,227      $ 5,500       $ 727   
  

 

 

   

 

 

    

 

 

 
Earnings per Share (Tables)
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding

The following is a reconciliation between basic and diluted weighted average shares outstanding:

 

     13 Weeks Ended  
(In thousands)    April 28,
2012
     April 30,
2011
 

Weighted average common shares outstanding:

     

Basic number of common shares outstanding

     194,890         194,683   

Dilutive effect of stock options and non-vested restricted stock

     2,362         1,950   
  

 

 

    

 

 

 

Diluted number of common shares outstanding

     197,252         196,633   
  

 

 

    

 

 

 
Property and Equipment (Tables)
Property and Equipment

Property and equipment consists of the following:

 

(In thousands)    April 28,
2012
    January 28,
2012
    April 30,
2011
 

Property and equipment, at cost

   $ 1,458,090      $ 1,458,522      $ 1,458,608   

Less: Accumulated depreciation

     (885,986     (876,360     (816,701
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 572,104      $ 582,162      $ 641,907   
  

 

 

   

 

 

   

 

 

 
Intangible Assets (Tables)
Intangible assets

Intangible assets consist of the following:

 

(In thousands)    April 28,
2012
    January 28,
2012
    April 30,
2011
 

Trademarks, at cost

   $ 44,362      $ 44,142      $ 43,114   

Less: Accumulated amortization

     (4,806     (4,310     (2,660
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

   $ 39,556      $ 39,832      $ 40,454   
  

 

 

   

 

 

   

 

 

 
Share-Based Compensation (Tables)

A summary of the Company’s stock option activity for the 13 weeks ended April 28, 2012 follows:

 

      Options     Weighted-Average
Exercise Price
     Weighted-Average
Remaining
Contractual

Term
     Aggregate
Intrinsic Value
 
     (In thousands)            (In years)      (In thousands)  

Outstanding—January 28, 2012

     11,197      $ 15.31         

Granted

     1,046      $ 14.26         

Exercised (1)

     (1,516   $ 8.00         

Cancelled

     (391   $ 10.57         
  

 

 

   

 

 

    

 

 

    

 

 

 

Outstanding—April 28, 2012

     10,336      $ 16.45         2.5       $ 40,451   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested and expected to vest—April 28, 2012

     10,235      $ 16.47         2.5       $ 40,085   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable—April 28, 2012 (2)

     4,973      $ 11.56         2.1       $ 34,183   

 

(1) Options exercised during the 13 weeks ended April 28, 2012 had exercise prices ranging from $4.54 to $13.04.
(2) Options exercisable represent “in-the-money” vested options based upon the weighted average exercise price of vested options compared to the Company’s stock price at April 28, 2012.

The fair value of stock options was estimated based on the closing market price of the Company’s common stock on the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 

     13 Weeks Ended  

Black-Scholes Option Valuation Assumptions

   April 28,
2012
    April 30,
2011
 

Risk-free interest rate (1)

     0.6     2.1

Dividend yield

     2.8     2.3

Volatility factor (2)

     41.2     42.7

Weighted-average expected term (3)

     4.0 years        5.0 years   

Expected forfeiture rate (4)

     8.0     8.0

 

(1) Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected life of our stock options.
(2) Based on a combination of historical volatility of the Company’s common stock and implied volatility.
(3) Represents the period of time options are expected to be outstanding, based on historical experience.
(4) Based upon historical experience.

A summary of the Company’s restricted stock activity is presented in the following tables:

 

     Time-Based Restricted Stock Units      Performance-Based Restricted Stock Units  
      13 Weeks Ended
April 28, 2012
     13 Weeks Ended
April 28, 2012
 
(Shares in thousands)    Shares     Weighted-Average Grant
Date Fair Value
     Shares     Weighted-Average Grant
Date Fair Value
 

Nonvested - January 28, 2012

     1,784      $ 15.73         1,762      $ 14.23   

Granted

     1,472        14.69         869        14.65   

Vested

     (1,074     16.65         —          —     

Cancelled

     (56     15.02         (397     11.67   
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonvested - April 28, 2012

     2,126      $ 14.56         2,234      $ 14.85   
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
3 Months Ended
Apr. 28, 2012
Year
Segment
Apr. 30, 2011
Significant Accounting Policies [Line Items]
 
 
Number of operating segments
 
Net impairment loss recognized in earnings
$ 0 
$ 0 
Asset impairment charges
Finite intangibles, useful life, minimum (in years)
15 
 
Finite intangibles, useful life, maximum (in years)
25 
 
Finite-lived impairment charges
Revenue related to gift card breakage
$ 1,900,000 
$ 1,100,000 
Useful Lives of Major Classes of Assets (Detail)
3 Months Ended
Apr. 28, 2012
Year
Buildings
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
25 
Leasehold Improvements
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
Lesser of 10 years or the term of the lease 
Useful lives in asset class, maximum
10 
Fixtures and equipment
 
Property, Plant and Equipment, Estimated Useful Lives, Lease Terms [Line Items]
 
Useful lives in asset class
Fair Market Values for Cash and Marketable Securities (Detail) (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Jan. 29, 2011
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
$ 713,443 
$ 719,545 
$ 474,668 
$ 667,593 
Short-term investments:
 
 
 
 
Short-term investments
8,587 
25,499 
130,513 
 
Fair Value, Measurements, Recurring
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
713,443 
719,545 
474,668 
 
Short-term investments:
 
 
 
 
Short-term investments
8,587 
25,499 
130,513 
 
Long-term investments:
 
 
 
 
Long-term investments
727 
847 
5,915 
 
Total
722,757 
745,891 
611,096 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
625,398 
548,728 
251,002 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
51,915 
131,785 
154,548 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
19,999 
29,998 
43,830 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
13,695 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash and cash equivalents
16,131 
9,034 
25,288 
 
Short-term investments:
 
 
 
 
Short-term investments
3,087 
19,999 
73,143 
 
Fair Value, Measurements, Recurring |
Corporate bonds
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
21,232 
 
Fair Value, Measurements, Recurring |
Term-deposits
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
 
 
18,743 
 
Fair Value, Measurements, Recurring |
ARS Call Option
 
 
 
 
Long-term investments:
 
 
 
 
Long-term investments
727 
847 
415 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Short-term investments:
 
 
 
 
Short-term investments
5,500 
5,500 
3,700 
 
Long-term investments:
 
 
 
 
Long-term investments
 
 
$ 5,500 
 
Cash and Cash Equivalents, Short-term Investments and Long-term Investments - Additional Information (Detail) (USD $)
3 Months Ended 12 Months Ended 12 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Jan. 29, 2011
ARS Call Option
Apr. 28, 2012
ARS Call Option
Jan. 29, 2011
ARS
Schedule of Available-for-sale Securities [Line Items]
 
 
 
 
 
Proceeds from sale of available-for-sale securities
$ 20,119,000 
$ 48,887,000 
 
 
$ 177,472,000 
Purchase of available-for-sale securities
3,051,000 
111,199,000 
 
 
 
Gross unrealized holding losses
 
 
 
Available-for-sale securities sold, carrying value
 
 
 
 
191,400,000 
Realized loss on sale of investment securities
 
 
 
 
(24,426,000)
Loss on sale of available-for-sale securities previous included in OCI
 
 
 
 
10,900,000 
Available-for-sale securities sold, par value
 
 
 
 
119,700,000 
Expiration of right to repurchase securities and/or receive certain additional proceeds
 
 
Oct. 29, 2013 
 
 
Assessed Value Of The ARS Call Option Upon Origination
 
 
 
400,000 
 
Fair value of the ARS Call Option
 
 
 
$ 700,000 
 
Fair Value Hierarchy for Financial Assets (Cash Equivalents and Investments) Measured at Fair Value on a Recurring Basis (Detail) (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Jan. 29, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
$ 713,443 
$ 719,545 
$ 474,668 
$ 667,593 
Short-term investments
8,587 
25,499 
130,513 
 
Fair Value, Measurements, Recurring
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
713,443 
719,545 
474,668 
 
Long-term investments
727 
847 
5,915 
 
Short-term investments
8,587 
25,499 
130,513 
 
Total
722,757 
745,891 
611,096 
 
Fair Value, Measurements, Recurring |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
625,398 
548,728 
251,002 
 
Fair Value, Measurements, Recurring |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
51,915 
131,785 
154,548 
 
Fair Value, Measurements, Recurring |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
16,131 
9,034 
25,288 
 
Short-term investments
3,087 
19,999 
73,143 
 
Fair Value, Measurements, Recurring |
Term-deposits
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
18,743 
 
Fair Value, Measurements, Recurring |
Corporate bonds
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
21,232 
 
Fair Value, Measurements, Recurring |
ARS Call Option
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
727 
847 
415 
 
Fair Value, Measurements, Recurring |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
19,999 
29,998 
43,830 
 
Short-term investments
 
 
13,695 
 
Fair Value, Measurements, Recurring |
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
 
 
5,500 
 
Short-term investments
5,500 
5,500 
3,700 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
713,443 
 
474,668 
 
Short-term investments
3,087 
 
126,813 
 
Total
716,530 
 
601,481 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Cash
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
625,398 
 
251,002 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Money-market
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
51,915 
 
154,548 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Treasury bills
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
16,131 
 
25,288 
 
Short-term investments
3,087 
 
73,143 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Term-deposits
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
18,743 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Corporate bonds
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Short-term investments
 
 
21,232 
 
Fair Value, Measurements, Recurring |
Quoted Market Prices in Active Markets for Identical Assets (Level 1) |
Commercial paper
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Cash and cash equivalents
19,999 
 
43,830 
 
Short-term investments
 
 
13,695 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
727 
 
5,915 
 
Short-term investments
5,500 
 
3,700 
 
Total
6,227 
 
9,615 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
ARS Call Option
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
727 
 
415 
 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
ARS |
State and local government
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Long-term investments
 
 
5,500 
 
Short-term investments
$ 5,500 
 
$ 3,700 
 
Fair Value Measurements - Additional Information (Detail) (Significant Unobservable Inputs (Level 3))
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Significant Unobservable Inputs (Level 3)
 
 
Fair Value, Measurement Inputs, Disclosure [Line Items]
 
 
Discounted cash flow model to value Level 3 investments, assumptions, recovery period minimum
 
2 months 
Discounted cash flow model to value Level 3 investments, assumptions, recovery period maximum
 
14 months 
Discounted cash flow model to value Level 3 investments, assumptions, recovery period
2 months 
 
Discounted cash flow model to value Level 3 investments, assumptions, discount yield
0.10% 
 
Discounted cash flow model to value Level 3 investments, assumptions, discount yield minimum
 
0.20% 
Discounted cash flow model to value Level 3 investments, assumptions, discount yield maximum
 
2.00% 
Discounted cash flow model to value Level 3 investments, assumptions, illiquidity
0.50% 
0.50% 
Reconciliation of Assets Measured at Fair Value On Recurring Basis Using Unobservable Inputs (Level 3) (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 3 Months Ended
Apr. 28, 2012
Apr. 28, 2012
ARS
State and local government
Jan. 28, 2012
ARS
State and local government
Apr. 28, 2012
ARS Call Option
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
 
 
Beginning Balance
$ 6,347 
$ 5,500 
$ 5,500 
$ 847 
Settlements
(120)
 
 
(120)
Ending Balance
$ 6,227 
$ 5,500 
$ 5,500 
$ 727 
Reconciliation Between Basic and Diluted Weighted Average Shares Outstanding (Detail)
In Thousands, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Weighted average common shares outstanding:
 
 
Basic number of common shares outstanding
194,890 
194,683 
Dilutive effect of stock options and non-vested restricted stock
2,362 
1,950 
Diluted number of common shares outstanding
197,252 
196,633 
Earnings Per Share - Additional Information (Detail)
In Millions, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Earnings Per Share Disclosure [Line Items]
 
 
Equity awards to purchase shares of common stock that were not included in the computation of weighted average diluted common share amounts as the effect of doing so would have been anti-dilutive
7.7 
7.4 
Restricted Stock Units (RSUs)
 
 
Earnings Per Share Disclosure [Line Items]
 
 
Shares of restricted stock units not included in the computation of weighted average diluted common share amounts because the number of shares ultimately issued is contingent on performance
0.9 
1.8 
Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, at cost
$ 1,458,090 
$ 1,458,522 
$ 1,458,608 
Less: Accumulated depreciation
(885,986)
(876,360)
(816,701)
Property and equipment, net
$ 572,104 
$ 582,162 
$ 641,907 
Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Apr. 30, 2011
Finite-Lived Intangible Assets [Line Items]
 
 
 
Trademarks, at cost
$ 44,362 
$ 44,142 
$ 43,114 
Less: Accumulated amortization
(4,806)
(4,310)
(2,660)
Intangible assets, net
$ 39,556 
$ 39,832 
$ 40,454 
Other Credit Arrangements - Additional Information (Detail)
In Millions, unless otherwise specified
1 Months Ended 1 Months Ended
Apr. 28, 2012
Entity
Mar. 2, 2012
Unsecured Revolving Credit Facility
USD ($)
Apr. 28, 2012
Unsecured Revolving Credit Facility
USD ($)
Mar. 2, 2012
Unsecured Revolving Credit Facility
Base Rate plus
Minimum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Base Rate plus
Maximum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Eurodollar Rates
Minimum
Mar. 2, 2012
Unsecured Revolving Credit Facility
Eurodollar Rates
Maximum
Apr. 28, 2012
Currency, U.S. Dollar
Demand letter of credit facilities
USD ($)
Mar. 2, 2012
Currency, U.S. Dollar
Demand letter of credit facilities
USD ($)
Mar. 2, 2012
Currency, Canadian Dollar
Demand line borrowings
CAD ($)
Debt Disclosure [Line Items]
 
 
 
 
 
 
 
 
 
 
Unsecured revolving credit facility, expiration period
 
5 years 
 
 
 
 
 
 
 
 
Borrowing agreements with financial institutions
 
$ 150.0 
 
 
 
 
 
$ 135.0 
$ 110.0 
$ 25.0 
Credit facility interest rate description
 
The Credit Agreement has various borrowing options, including rates of interest that are based on (i) an Adjusted London Interbank Offered Rate ("LIBOR" as defined in the Credit Agreement) plus a margin ranging from 1.00% to 1.75% based on a defined leverage ratio, payable at the end of the applicable interest period; and (ii) a Base Rate (as defined in the Credit Agreement), plus a margin ranging from 0.00% to 0.75% based on a defined leverage ratio, payable quarterly. 
 
 
 
 
 
 
 
 
Frequency of payments for interest on borrowing
 
Quarterly 
 
 
 
 
 
 
 
 
Interest rate margin
 
 
 
1.00% 
1.75% 
0.00% 
0.75% 
 
 
 
Commitment fee payable on the unused portion of total lender commitments
 
 
 
0.175% 
0.30% 
 
 
 
 
 
Outstanding borrowings
 
 
7.6 
 
 
 
 
23.9 
 
 
Borrowings
 
 
$ 0 
 
 
 
 
 
 
 
Borrowing agreements, number of financial institutions
 
 
 
 
 
 
 
 
 
Share-Based Compensation- Additional Information (Detail) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Share-based compensation expense
$ 21,300,000 
$ 2,500,000 
Share-based compensation expense, net of tax
13,100,000 
1,500,000 
Weighted-average grant date fair value of stock options granted
$ 3.69 
$ 4.73 
Aggregate intrinsic value of options exercised
13,100,000 
1,200,000 
Cash received from the exercise of stock options
12,165,000 
2,539,000 
Tax benefit realized from stock option exercises
4,422,000 
256,000 
Shares available for all equity grants
23.2 
 
Time-Based Restricted Stock Units
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense
35,500,000 
 
Unrecognized compensation expense, weighted average period
2.3 
 
Vesting period
3 years 
 
Stock Options
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense
3,400,000 
 
Unrecognized compensation expense, weighted average period
2.3 
 
Performance-Based Restricted Stock Units
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Unrecognized compensation expense
$ 18,900,000 
 
Vesting period
3 years 
 
Summary of Stock Option Activity (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Year
Options
 
Outstanding - beginning
11,197 
Granted
1,046 
Exercised
(1,516)1
Cancelled
(391)
Outstanding - Ending
10,336 
Vested and expected to vest - ending
10,235 
Exercisable - ending
4,973 2
Weighted-Average Exercise Price
 
Outstanding - beginning
$ 15.31 
Granted
$ 14.26 
Exercised
$ 8.00 1
Cancelled
$ 10.57 
Outstanding - ending
$ 16.45 
Vested and expected to vest - ending
$ 16.47 
Exercisable - ending
$ 11.56 2
Weighted-Average Remaining Contractual Term (In years)
 
Outstanding - ending
2.5 
Vested and expected to vest - ending
2.5 
Exercisable - ending
2.1 2
Aggregate Intrinsic Value
 
Outstanding - ending
$ 40,451 
Vested and expected to vest - ending
40,085 
Exercisable - ending
$ 34,183 2
Summary of Stock Option Activity (Parenthetical) (Detail)
3 Months Ended
Apr. 28, 2012
Schedule of Share based Compensation Arrangements by Share based Payment Award, Performance Options [Line Items]
 
Options exercised, exercise price range, lower limit
$ 5.54 
Options exercised, exercise price range, upper limit
$ 13.04 
Black-Scholes Option Valuation Assumptions (Detail)
3 Months Ended
Apr. 28, 2012
Year
Apr. 30, 2011
Year
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
 
 
Risk-free interest rate
0.60% 1
2.10% 1
Dividend yield
2.80% 
2.30% 
Volatility factor
41.20% 2
42.70% 2
Weighted-average expected term
3
3
Expected forfeiture rate
8.00% 4
8.00% 4
Summary of Restricted Stock Activity (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Time-Based Restricted Stock Units
 
Shares
 
Nonvested - beginning
1,784 
Granted
1,472 
Vested
(1,074)
Cancelled
(56)
Nonvested - ending
2,126